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Type: Journal article
Title: Payroll taxes, social insurance and business cycles
Author: Burda, M.
Weder, M.
Citation: Journal of the European Economic Association, 2016; 14(2):438-467
Publisher: Wiley
Issue Date: 2016
ISSN: 1542-4766
Statement of
Michael C. Burda and Mark Weder
Abstract: Payroll taxes represent a major distortionary influence of governments on labor markets. This paper examines the role of time-varying payroll taxes and the social safety net for cyclical fluctuations in a nonmonetary economy with labor market frictions and unemployment insurance, when the latter is only imperfectly related to search effort. A balanced social insurance budget induces countercyclical payroll taxation, renders gross wages more rigid over the cycle and strengthens the model's endogenous propagation mechanism. For conventional calibrations, the model generates a negatively sloped Beveridge curve and countercyclical unemployment as well as substantial volatility and persistence of vacancies and unemployment.
Keywords: Business cycles; consumption-tightness puzzle; labor markets; payroll taxes; unemployment
Description: Article first published online: 21 JUL 2015
Rights: © 2015 by the European Economic Association
RMID: 0030033113
DOI: 10.1111/jeea.12145
Grant ID:
Appears in Collections:Economics publications

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